MAKING CENTS: No ‘death tax’? You still need estate planning

Friday

Jun 9, 2017 at 12:01 AMJun 9, 2017 at 12:05 PM

John Napolitano / For The Patriot Ledger

Today, there is a federal “death tax” for all estates greater than $5.49 million per decedent. That’s almost $11 million per married couple that would avoid estate taxes under current legislation for having a complete, basic estate plan. For those well in excess of that amount – you do the math. It could cost you 40% of that excess in federal taxes alone to ignore this future liability. Add to this whatever your local or state tax situation is, and you could pay more than half of your estate to the tax authorities.

Of course, not all states have estate taxes but most in the Northeast do with rates running as high as 10–15% and frequently smaller exemptions in the $1 million range.

In addition to estate taxes, most people who intend to leave an inheritance would like to make sure that the inheritance is as protected as possible from the perils of a future divorce, lawsuits, bad health or bad decisions. Proper structuring of an estate can help to avoid any of these potential, but common problems to be encountered by future generations.

Most children are not capable of overseeing large sums of money when they are 18 or 21 years old. In most states, absent language to the contrary, money or assets left to children become their property with full control at either age 18 or 21, depending on your state of residence. There will always be an exception, but at that age, young adults are far too susceptible to the actions of their peers and their whims to be allowed control over large sums of money. More important, you need to think down the road. While your immediate children may already be significantly older than age 21, their children may not be. A solid estate plan is one that is built to survive generations if that is what needs to happen. The protections that you set up today may stay intact forever if your adult children and their offspring don’t remove the assets from the trusts that you establish.

Of course that doesn’t mean that they won’t have access to the assets or the money – they would but merely through the trust.

And finally, planning is very significant for business owners. Succession of a business is tough enough. Add to that the complexities of family, key employees, real estate and keeping a business thriving through the turmoil of an unexpected death or disability and advanced planning can be a god send. Make sure that all of the key people involved are aware of the plan that you have created.

John P. Napolitano is CEO of U.S. Wealth Management in Braintree and 2013 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthmanagement.com or on Linked In. Leave a comment at the end of the column.